Federal Government Must Recover Billions Wasted on Obamacare State Exchanges

In a recent letter addressed to Senator John Cornyn (R-Texas), Obamacare chief Andy Slavitt said the federal government will “recover its fair portion” of funds in the event a failed Obamacare state exchange reaches a settlement with contractors.

Given that the federal government funded the overwhelming majority of state exchange projects with $5.5 billion in taxpayer funds, “fair portion” should be close to 100 percent.

Recently, Maryland reached a $45 million settlement with a contractor stemming from its state exchange debacle. But despite financing the Maryland exchange to the tune of nearly $200 million the federal government will receive only 70 percent of funds from the settlement. As the Slavitt letter explains:

“In Maryland, Noridian will pay back $45 million that it had received from the SBM, of which CMS (Centers for Medicare and Medicaid Services) will receive approximately $32 million. CMS is working with the Maryland SBM so that funds are returned to the federal government. If a SBM reaches a similar settlement with their vendor, CMS will ensure that the federal government will recover its fair portion.”

To date, recovery of the billions in wasted state exchange funds has been near non-existent, despite failed exchanges in Oregon, Hawaii, New Mexico, and Nevada costing taxpayers $733 million.

In fact, according to a recent report by the Government Accountability Office, these four states have returned ZERO dollars to the federal government, and state exchanges collectively have so far returned just $1 million.

But the waste doesn’t end there, as “working” state exchanges including Vermont, Minnesota, Maryland, and Massachusetts have each misused as much as hundreds of millions in taxpayer funds.

Further, an investigation led by House Energy and Commerce Oversight Subcommittee Chairman Tim Murphy (R-Pa.) found that federal officials were unable to provide information on the long-term sustainability of remaining exchanges, and were unable to defend the four failed state exchanges.

This investigation also raised concerns that failed exchanges may have improperly kept user fees even after transferring all functionality to the federally run Healthcare.gov.

Of all state exchange failures, the most alarming story is undoubtedly Cover Oregon. A recently uncovered email confirmed the accusations that the $305 million exchange was run by partisan political advisors focused solely on then-Governor John Kitzhaber’s 2014 reelection.

At the time the email was sent, the state had just announced it was shuttering Cover Oregon and transitioning to Healthcare.gov following much publicized criticism for failing to work by its scheduled November 2013 launch date – or for months after this deadline.

The eventual transition to the federal system cost an additional $41 million in mostly federal funds and it is believed that Kitzhaber’s aides shut down the exchange and spent this additional money moving to the federal system even as Cover Oregon's infrastructure was close to 90 percent complete.

More state exchanges may soon be following in Cover Oregon’s footsteps. Two and a half years since it first launched, Vermont’s exchange still lacks key functionality and stakeholders are fast running out of patience.

Given the numerous Obamacare state exchange failures across the country and the billions in wasted federal funds, Congress must move swiftly to ensure taxpayer interests are upheld. The bottom line is the American people financed the construction of state exchanges. Now that they have failed, taxpayers deserve their money back.

In his 2021 revised state budget, Governor Gavin Newsom (D-Calif.) recently proposed yet another new tax on electronic cigarettes and vapor products. Taking aim at low-income consumers, this tax would raise taxes on adults who are attempting to quit smoking at a time that most adults can least afford it. The proposed budget also includes significant limits on tax credits and deductions for businesses and employers, resulting in billions of dollars in new and higher taxes beginning on July 1.

Newsom’s $33 million higher tax on vaping would disproportionately hit low-income Californians. Data from the Health Education Council reveals that Californians making less than $25,000 are already twice as likely to smoke compared to those Californians making over $50,000 a year. Levying additional taxes on smokers who are trying to quit takes aim at those adults experiencing the greatest financial uncertainty and struggles in the midst of Covid-19.

This new tax on vaping would not be the first. In 2016, Californians were among the first in the nation to institute a statewide excise tax on nicotine vapor products. 59 percent of voters voted for the ballot initiative that raised the state cigarette tax and changed the definition of a tobacco product subject to taxes to include e-cigarettes. Today, 21 states have instituted similar taxes ranging from a tax of 5 cents per milliliter of liquid in North Carolina, Kansas, and Louisiana to a 95 percent wholesale tax in Minnesota. Governor Newsom’s new budget, however, would make California’s tax the highest in the nation by adding an additional layer of taxation to the sale of these products.

Differences between the structure of vaping taxes across the country vary based on the point in the supply chain where taxes are imposed and the part of the product that is taxed. Wholesale value taxes are determined by the cost for retailers like vape shops to purchase a unit, while volume taxes are determined by the amount of liquid in a vaping device. California’s proposed budget would combine the two methods, adding both the current wholesale tax of 59% with a new $2 tax per 40 milligrams of nicotine per unit.

By creating a taxing pyramid in this way, e-cigarettes in California would actually be taxed at a higher rate than combustible cigarettes. Beginning in 2017, cigarettes were taxed at a rate of $2.87 per pack. Other tobacco products and e-cigarettes are subject to a variable equivalent tax which varies based on the price of cigarettes annually. A product like JUUL is currently taxed at a rate of 59% or $2.36 per JUUL pod. Under Newsom’s proposal, that tax would increase an additional $3.50, making the total tax on one JUUL pod product $5.86. For an adult smoker trying to transition from a Marlboro or American Spirits cigarette to a JUUL e-cigarette, the cost in taxes would be much higher to vape under the governor’s proposal.

Taxing e-cigarettes at a higher rate than cigarettes stands in stark contrast to the data suggesting that e-cigarettes are significantly less harmful than cigarettes for consumers. Both Public Health England and the Royal College of Physicians have concluded that e-cigarettes are at least 95% less harmful than cigarettes. As such, taxing them at a higher rate is reckless health policy.

For adult smokers seeking a less harmful nicotine alternative, e-cigarettes are demonstrably more effective as other quit tools. Research from the New England Journal of Medicine reveals that e-cigarettes are nearly twice as effective as the nicotine patch, lozenge, or gum at getting adult smokers to quit.

The negative consequences of increasing taxes on e-cigarettes have already been proven in the U.S. After Minnesota imposed a 95% wholesale tax on nicotine vapor products in 2013, the Bureau of Economic Research estimates that over 32,000 Minnesotans were discouraged from transitioning away from cigarettes as a result of the tax. Gavin Newsom’s new tax would clearly discourage Californians from quitting smoking.

For those adult vapers who refuse to go back to smoking, some may look to the black market for e-cigarettes. Newsom’s new vaping tax will push countless adults to seek out new products online, across state lines, or in unregulated markets that are not subject to state or federal regulatory scrutiny. The long history of tobacco smuggling shows that consumers regularly seek out less expensive options in these ways. Evidence from 2017 reveals that of all cigarettes smoked in California, nearly 45% were smuggled in from out of state to avoid high state excise taxes. Raising excise taxes on e-cigarettes will undoubtedly cause a similar reaction, reducing state revenues and increasing illicit trade in America’s biggest state.

Ironically, both the governor and state legislature acknowledge the risks of high excise taxes leading to black market sales. This year, Newsom embraced a reduction in the state taxes imposed on marijuana in California. The lead sponsor of a bill to reduce the excise tax on marijuana sales from 15 percent to 11 percent explained that the move would “reduce and shrink the unlicensed, illicit market” which is estimated to be 75 percent of the total state market. Two-thirds of the entire market is still black-market sales, despite the fact that marijuana has been legal for more than two years.

California lawmakers should reject efforts to raise taxes on nicotine e-cigarettes and vapor products. These regressive taxes target adult smokers trying to transition to less harmful products while pushing consumers to unregulated black markets. Decades of evidence suggests that consumers will almost always seek out less expensive options, depriving the state of even more tax revenue, while harming the legal businesses in the state who simply want to provide smokers with better options.

Joe Biden said he will re-impose the Obamacare individual mandate tax if he is elected, a direct violation of his middle class tax pledge. Most households liable for this tax made less than $50,000 per year.

The Tax Cuts and Jobs Act signed by President Trump zeroed out the $695-$2,085 Obamacare individual mandate tax, beginning in tax year 2019. The highly unpopular tax was imposed on households not purchasing "qualifying" health insurance as defined by the federal government.

But Biden vows to reimpose this middle class tax. This is just one of the many reasons his middle class tax pledge has no credibility.

According to official IRS data for the 2017 tax year, 74% of households liable for the individual mandate tax had an adjusted gross income of less than $50,000.

The individual mandate tax penalty was paid by 4,606,271 households.

3,430,003 of these households had an adjusted gross income of less than $50,000.

On May 22, Biden told CNBC: "Nobody making under 400,000 bucks would have their taxes raised. Period. Bingo."

But Biden has already vowed to re-impose the individual mandate tax. Here's his exchange with CNN on July 5, 2019:

In June, Chile will start to impose a Digital Services Tax on American tech companies such as Google, Amazon, Netflix, and Uber. The Chilean government introduced a 19% value-added tax on digital and online services provided by foreign companies. Chileans have been benefiting from the expansion of the digital economy for many years. Especially in recent months in response to the COVID-19 pandemic.

Chileans will have to start paying almost a fifth more for digital services such as the video streaming service Netflix in June when the government's 19% value-added tax begins to be applied. Many other digital companies are expected to adjust pricing as well.

With this new digital tax hike, Chile joins the long list of Latin American and European countries that impose taxes on foreign digital platforms and companies, risking a trade war and a worsening of the relationship to the U.S. while hurting their own digital and innovation economy.

Earlier this week, the Trump administration finalized a rule protecting free speech and donor privacy. Under the rule, many nonprofits including 501(c)(4)s, 501(c)(5)s, and 501(c)(6)s would no longer be required to submit a Schedule B form to the IRS.

President Trump, Treasury Secretary Mnuchin, and leaders in Congress including Senate Majority Leader Mitch McConnell (R-KY) and House Minority Leader Kevin McCarthy (R-Calif.) should be congratulated for their work defending free speech.

Congress first required section 501(c)(3) organizations to send the IRS to personal information of their donors 50 years ago. This information, which includes the names and addresses of donors, is submitted to the IRS on the Schedule B form. The agency later extended this requirement to all other tax-exempt organizations including 501(c)(4)s and 501(c)(6)s.

Schedule B forms are not used for any official purpose and the IRS is prohibited from sharing or disclosing this sensitive information. Instead of serving a legitimate purpose, the disclosure requirement creates needless compliance costs on both non-profits and the IRS.

Ending the collection of Schedule B forms will significantly streamline tax compliance. The Institute for Free Speech estimates that nonprofits would save about $63 million per year compliance costs if Schedule B were fully repealed.

Opponents of the rule have falsely stated that it allows a flood of “foreign dark money” into the political system. This is not true. As Secretary Mnuchin has noted in the past, this proposal does not limit transparency as the same information will be available to the public as before.

There are already measures in place to track foreign donations, and it is highly unlikely that anyone will admit to funneling illegal money on the form. Even if the IRS did suspect laws were being broken, it has no authority to share the information it collects with the FCC and the DOJ, the two agencies with the ability to enforce campaign finance laws.

Ending the collection of Schedule B forms will instead remove a tool of the left to chill political speech.

Under the Obama administration, there were several cases where agency officials leaked the sensitive information contained on Schedule B forms for political purposes, such as leaking of the schedule B belonging to the National Organization for Marriage.

The IRS record of protecting taxpayers is poor in this space – a 2016 report by the Government Accountability Office warned that the IRS may still be unfairly targeting non-profits “based on an organization’s religious, educational, political, or other views.”

Ending the collection of sensitive taxpayer data for non-profits is a huge victory for free speech and will stop future administrations from targeting these organizations.

Democrats have already tried to block this proposal through the Congressional Review Act process and will undoubtedly continue trying to oppose it in Congress.

Moving forward, further efforts by Democrats to oppose this rule in Congress should be rejected. Instead, lawmakers should follow the lead of the administration and ensure that the prohibition on collecting Schedule B forms is expanded to all non-profits and codified in law.

CNBC's Robert Frank today noted that Joe Biden has "the most expensive tax plan from any Democrat in recent history."

Here's the exchange:

Robert Frank: "Well the truth is that Joe Biden -- even though he's portrayed as a moderate -- is offering the most expensive Democratic tax plan we've seen from any Democratic candidate in recent history. Hillary Clinton's plan was $1.5 trillion, Biden's is $4 trillion and basically it's because he's raising the ordinary income tax rate on those who make more than $400,000, he's raising the capital gains rate to be 39.6% from 20% -- that is by far the biggest cap capital gains tax increase ever, and then he's raising the corporate income tax rate from 21% to 28%. Add that together, it's $4 trillion in spending, 1.5% of GDP. That would be a 1.5% in decline over ten years."

Earlier in the day on CNBC Biden vowed to raise taxes by eliminating the Tax Cuts and Jobs Act enacted by the congressional Republicans and President Trump.

Under Biden the USA would have the highest corporate income tax rate in the developed world, higher than China (25 percent), the United Kingdom (19 percent), Canada (26.8 percent), and Ireland (12.5 percent).

Millions of low and middle-income households would be stuck paying the Obamacare individual mandate tax.

Small employers will face tax increases due to the increase in marginal income tax rates and the repeal of the TCJA 20% deduction for small business income.

Millions of households would see their standard deduction cut in half, adding to their tax complexity as they are forced to itemize their deductions and deal with the shoebox full of receipts on top of the refrigerator.

Even left-leaning media outlets have acknowledged the fact that the Trump tax cuts have helped middle income households:

On tax policy, Biden has a history of lying to the American people. He lied when he ran for Vice President in 2008 when he repeatedly said he would not support any form of any tax that imposed even “one single penny” of tax increase on anyone making less than $250,000. Biden shattered that promise upon taking office.

Biden’s 28% tax rate is also higher than the United Kingdom (19 percent), Canada (26.8 percent), and Ireland (12.5 percent).

President Trump and congressional Republicans lowered the federal corporate tax rate from the Obama-Biden era 35% rate down to the current 21% rate as part of the Tax Cuts and Jobs Act. When Trump took office, America’s corporate rate was the highest in the developed world.

The corporate tax cut was the cornerstone of the previously robust American economy. Before COVID-19, the Trump economy routinely created well over 100,000 private sector jobs per month. Nominal wage growth enjoyed 19 consecutive months of over 3 percent growth, and unemployment was consistently below 4 percent, a 50-year record low.

As the focus turns towards reopening the country and getting Americans safely back to work, Biden plan to raise the corporate rate would harm American workers, stunt job and wage growth, and erode our competitive advantage in the global economy.

On CNBC today Joe Biden threatened to "reverse" the Trump tax cuts, a move that will impose massive tax increases on the middle class. Then he said he wouldn't raise taxes on anyone making less than $400,000 -- which is in direct conflict with his "reverse" statement.

So what happened the last time Biden promised not to raise middle class taxes?

As Vice President, Joe Biden broke his promise to the middle class that no one making less than $250,000 would see a single penny of their tax raised. Biden said his tax vow applied to "any tax."

Biden made the promise during a nationally televised Vice Presidential debate on Oct. 3, 2008 using firm language:

“No one making less than $250,000 under Barack Obama’s plan will see one single penny of their tax raised whether it’s their capital gains tax, their income tax, investment tax, any tax.”

Once elected, Biden immediately pushed for tax increases on millions of middle class households. When Obamacare was signed into law with Biden's support, it imposed a series of middle class tax hikes including the individual mandate tax, new taxes on households with health savings accounts and flexible spending accounts, and an income tax hike on Americans facing high medical bills. Biden also presided over a 156 percent increase in the federal excise tax on tobacco.

“Joe Biden lied to the American people when he said he and Obama would never raise 'any tax' on any American earning less than $250,000. This time around, taxpayers know what to expect,” said Grover Norquist, president of Americans for Tax Reform.

Biden frequently brags of being the key to securing Democrat congressional support for Obamacare, which imposed many direct tax increases on the middle class:

Individual Mandate Tax: Obamacare imposed a tax penalty of $695 for an individual and $2,085 for a family of four for failing to buy “qualifying” health insurance as defined by Obama-Biden rules.

The tax hit low and middle-income families hard: Three-fourths of households stuck paying the tax made less than $50,000 per year, a blatant violation of Biden's pledge to the American people. (Thanks to the GOP congress and President Trump, this tax was zeroed out as part of the Tax Cuts and Jobs Act.)

Biden is now pushing to reimpose the individual mandate tax.

Medicine Cabinet Tax on health Savings Accounts and Flexible Spending Accounts: Because of Obamacare, the 20 million Americans with a Health Savings Account and the 30 to 35 million Americans with a Flexible Spending Account are no longer able to purchase over-the-counter medicines using these pre-tax account funds. Examples include cold, cough, and flu medicine, menstrual cramp relief medication, allergy medicines, and dozens of other common medicine cabinet health items.

Chronic Care Income Tax Hike: This income tax increase directly targeted middle class Americans who happen to face high medical and dental bills in a given year. This Obamacare tax hit 10 million households per year. Before Obamacare, Americans facing high medical expenses were allowed an income tax deduction to the extent that those expenses exceeded 7.5 percent of adjusted gross income (AGI). Obamacare imposed a threshold of 10 percent of AGI. Therefore, Biden not only made it more difficult to claim this deduction, he widened the net of taxable income.

Again, low and middle income households were hit hard by this tax. On average, affected taxpayers earned about $53,000 annually. ATR estimates the average income tax increase for the average affected household amounted to $200 - $400 per year. Thanks to President Trump and congressional Republicans, this tax hike was rolled back as part of the Tax Cuts and Jobs Act. Biden has threatened many times to repeal the TCJA.

Flexible Spending Account Tax: The 30 - 35 million Americans who use a pre-tax Flexible Spending Account (FSA) at work to pay for their family’s basic medical needs face an Obamacare-imposed cap of $2,500.

Before Obamacare, the accounts were unlimited under federal law. But now, parents looking to save for medical costs or braces for the kids find themselves quickly hitting this new cap. This restricts the options for low and middle income families.

There is one group of flexible spending account households for whom this tax is particularly cruel and onerous: parents of special needs children. Families with special needs children often use FSAs to pay for special needs education. Tuition and book costs at special needs schools can run thousands of dollars per year. Under tax rules, FSA dollars can be used to pay for this type of special needs education. This Obama-Biden tax increase limits the options available to these families.

If Biden repeals the TCJA, as he has said countless times, Americans will be stuck paying significantly higher taxes:

A family of four earning the median income of $73,000 would see a $2,000 tax increase each year.

Under Biden the USA would have the highest corporate income tax rate in the developed world, higher than China (25 percent), the United Kingdom (19 percent), Canada (26.8 percent), and Ireland (12.5 percent).

Millions of low and middle-income households would be stuck paying the Obamacare individual mandate tax.

Small employers will face tax increases due to the increase in marginal income tax rates and the repeal of the TCJA 20% deduction for small business income.

Millions of households would see their standard deduction cut in half, adding to their tax complexity as they are forced to itemize their deductions and deal with the shoebox full of receipts on top of the refrigerator.

Even left-leaning media outlets have acknowledged the fact that the Trump tax cuts have helped middle income households:

Under Biden the USA would have the highest corporate income tax rate in the developed world, higher than China (25 percent), the United Kingdom (19 percent), Canada (26.8 percent), and Ireland (12.5 percent).

Millions of low and middle-income households would be stuck paying the Obamacare individual mandate tax.

Small employers will face tax increases due to the increase in marginal income tax rates and the repeal of the TCJA 20% deduction for small business income.

Millions of households would see their standard deduction cut in half, adding to their tax complexity as they are forced to itemize their deductions and deal with the shoebox full of receipts on top of the refrigerator.

Even left-leaning media outlets have acknowledged the fact that the Trump tax cuts have helped middle income households:

On tax policy, Biden has a history of lying to the American people. He lied when he ran for Vice President in 2008 when he repeatedly said he would not support any form of any tax that imposed even “one single penny” of tax increase on anyone making less than $250,000. Biden shattered that promise upon taking office.

Maryland Governor Larry Hogan (R) used his veto authority on May 7 to kill two tax hikes that were passed in March by the Democrat-run Maryland Legislature.

“One of the digital tax bills vetoed by Hogan would’ve imposed the nation’s first tax on digital advertising,” ATR’s Patrick Gleason reported in a recent Forbes article. “The other tax hike vetoed by Hogan, House Bill 932, would’ve applied the state sales tax to streamed movies, downloaded music, e-books, and a host of other digital goods and services.”

“The economic fallout from this pandemic simply makes it impossible to fund any new programs, impose new tax hikes, nor adopt any legislation having any significant fiscal impact,” Governor Hogan explained in his veto statement.

Whereas Governor Hogan vetoed the bill in Maryland to extend of the state sales tax to online purchases, Republicans in Georgia decided to enact a similar tax hike earlier this year. House Bill 276, which was passed by the Republican-run Georgia legislature and signed into law in January, raises taxes on Georgians by making out-of-state “marketplace facilitators” responsible for collecting and remitting state sales tax for online purchases made by Georgia residents.

HB 276 is projected to raise state tax collections by $150 million annually. The bill also raises taxes on ridesharing services like Uber and Lyft.

“We agree that addressing inequities between online and brick and mortar retailers is an important issue, Uber spokeswoman Evangeline George told the Atlanta Journal-Constitution. “However, if action is not taken to put a reasonable fee structure on rideshare in place, Georgians will end up paying one of the highest rideshare taxes in the nation.”

Earlier voting has already begun for the approaching June 9 Georgia primary. The following Georgia lawmakers, many of whom are running for reelection this year, broke their Taxpayer Protection Pledge, a written commitment to Georgia taxpayers, by voting for HB 276:

Georgia Senator John Albers

Georgia Representative Sharon Cooper

Georgia Representative Matt Dollar

Georgia Representative Penny Houston

Georgia Representative Trey Kelley

Georgia Representative Billy Mitchell

Georgia Representative Alan Powell

Georgia Representative Bruce Williamson

Georgia Representative Albert Thomas Reeves

Georgia Representative Heath N. Clark

Georgia Representative Eddie Lumsden

Georgia Representative Todd Jones

Georgia Representative Don Hogan

Georgia Representative Bill Werkheiser

Many Georgia lawmakers defend their vote for HB 276 by saying it’s not a tax hike. Instead, these lawmakers claim they were simply clarifying who should collect and remit certain taxes owed.

While such arguments might have some technical merits, the fiscal note for the bill makes clear that the change is projected to collect $150 million more from Georgia taxpayers every year than was the case before passage of HB 276. Some politicians will claim taking an extra $150 million annually from taxpayers is not a tax hike, but that doesn’t change the fact that HB 276 has the same impact as a $150 million tax hike.

If Georgia lawmakers had wanted to expand sales tax collection and remittance requirements for “fairness” reasons alone, they could’ve done so in a way that didn’t result in a net tax hike on Georgians. Georgia lawmakers could’ve paired HB 276’s expansion of sales tax collection requirements with the 0.25% state income tax cut that Georgia lawmakers promised they would pass this year. Doing so would’ve achieved the “fairness” that HB 276 supporters claim to care about in a way that didn’t impose a net tax hike on Georgians, many of whom are struggling amid the current economic downturn.

In the nine weeks since shutdowns from the Covid-19 pandemic began, over one in five American workers have filed for unemployment. From the food services to domestic energy industry, economic shutdowns brought about by government decisions surrounding Covid-19 have negatively impacted nearly every sector of the economy. Yet, parts of the gig economy that provide income for 1.6 million Americans and are responsible for delivering food and supplies to vulnerable members of society have grown 14% from February to March.

Proposals to mitigate the current economic conditions have ranged from government-forgiven loan programs for businesses who keep employees on payroll to extremely generous unemployment benefits which are resulting in 63% of Americans on unemployment receiving more money by not working rather than going back to work. When it comes to maximizing a speedy return to the unprecedented pre-Covid economic prosperity, businesses and entrepreneurs will need maximum flexibility and limited government intervention.

The Trump administration has already taken hundreds of deregulatory actions aimed at getting the government out of the way as businesses navigate volatile conditions. Some in Congress and in the states, however, are pushing policies that would hinder the recover rather than make it possible. One such pursuit is the ongoing assault on the gig economy. These freelancing independent contractors perform tasks such as delivering groceries or passengers, writing code or news stories, and have significantly more flexibility than traditional employees. From Speaker Nancy Pelosi (D-Calif.) to presumptive Democrat nominee for President Joe Biden and California Governor Gavin Newsom, Democrats nationally are attempting to strictly define and restrict the nature of these new employment agreements in America.

Recent state efforts to reclassify independent contractors working within the gig economy began in California, when the legislature passed, and the governor signed Assembly Bill 5 in September of 2019. This legislation established an “ABC Test” that must be met in order for someone to be classified as an independent contractor, rather than an employee.

The two most difficult provisions of AB5’s ABC Test are to prove are that a worker “performs work that is outside the usual course of the company’s business” and that they are “engaged in an independently established trade, occupation, or business of the same nature as the work performed for the company.”

Simply put, for Uber to pay a California rideshare driver, they must transform their entire business model and give up the efficiencies and advantages that ridesharing offers both drivers and customers when compared to traditional taxicab services.

The ability for both drivers and riders to use digital ridesharing applications has resulted in drastically shorter wait times as consumers can compare both competitive pricing and times, while drivers have the ability to deny rides they see as unprofitable or inefficient. Furthermore, incentives based on the mutual rating of both parties have raised the bar of satisfaction that rideshare services provide compared to traditional taxi cabs.

While companies like Uber, Lyft, and Doordash have all pledged to fight the implementation of AB5 by putting the issue before voters this November, threats to the upstart industry don’t begin and end in California. At a national level, House Speaker Nancy Pelosi has pushed the Protecting the Right to Organize (PRO) Act through the House of Representatives. The PRO Act would adopt California’s “ABC Test” for independent contractors on a national scale. Joe Biden has also endorsed the PRO Act and signaled he would sign it into law if elected.

Barclays analysts have estimated following AB 5 reclassifications in California, Uber and Lyft are facing a cost increase of $3,625 per driver each year resulting in hundreds of millions in additional costs, driving already slim margins to near zero. The consequences of the Democrat effort to reclassify employment are not limited to employers, however.

Fewer than one in ten independent contractors want to be reclassified, namely due to the fact that working as an independent contractor allows for greater flexibility and control of hours as a side-job compared to employer mandated shifts. Furthermore, while regular IRA retirement contributions are capped, 1099 independent contractors can contribute nearly ten times what a regular IRA allows using a Solo 401(k) or SEP IRA.

With many Americans seeking to get back to work, the gig economy is one sector that has enormous potential to put money in the pockets of those struggling adults seeking immediate income-generating work that provides maximum flexibility.

As millions of Americans work to financially recover from the Covid-19 pandemic and potential recession, efforts including the PRO Act endorsed by Joe Biden have the potential to completely implode the flexible American gig economy. Anti-gig economy efforts will not only result in worse unemployment figures but will deprive millions more of urban transportation and food delivery services that are more necessary today than ever before.